To The Moon

Key Takeaways:

1. After Ruble Sunk, how will it perform in the future?

2. The impact of the devaluation of the ruble on Russia

3. Global impact of sanctions against Russia

1. After Ruble Sunk, How Will it Perform In The Future?

The value of the ruble plummeted to less than 1 U.S. cent this week after a new round of Western sanctions were enacted on Russia following its invasion of Ukraine.Now, 1 RUB = 0.00762516 USD , 134Russian Rubles in US Dollars By Mar 8, 2022.This is the worst devaluation crisis in the past 10 years, exceeding the ruble's collapse during the Crimea incident in March 2014 (depreciation of less than 5%) and the collapse in international oil prices in December 2014. (a 10% depreciation), during the diplomatic crisis between Russia and the U.S. and UK governments in April 2018 (a 7% depreciation) and during the coronavirus pandemic in Russia in March 2020 (a 8.6% depreciation).

Historically, the ruble's nearly 10-year trend has shown that once it depreciates sharply, it may stabilize and recover, but it is no longer possible to return to pre-crisis levels. Before the Russian-Ukrainian conflict, 1 dollar was 76 rubles (1 dollar was 34 rubles before the Crimea incident in March 2014). Now 1 dollar equal to 135 rubles, it is unlikely that the exchange rate of the ruble will return to a level below 100 rubles for 1 US dollar.

Over 300 Companies Leave Russia, Short & Long-term Losses Are Inevitable

2.The Impact of the Devaluation of The Ruble on Russia

Currently, the amount that Russian financial institutions can exchange for dollars and euros is strictly limited as ratings services lowered Russia’s credit score deep into junk territory.

Most of Russia's central bank's $640 billion foreign exchange reserves were frozen, and several Russian banks were excluded from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system.

According to public data, Russia's total import of goods may reached 296 billion US dollars in 2021, most of which are mechanical and electronic products, which is equivalent to the "rigid" Russian foreign exchange demand of about 1 billion US dollars per working day.

In order to ensure the operation of the domestic foreign exchange market, the Central Bank of Russia has prepared at least tens of billions of dollars or even more than 100 billion dollars of foreign exchange liquidity.

Besides that, In recent days, the Central Bank of Russia has doubled rates from 10% to 20% and is desperately trying to stabilize the value of the ruble.

But so far, it’s not working very well. In fact, it’s not working at all. Because most investors can’t get rubles even if they wanted to. “These interest rates are pointless to foreign investors,” said Simon Harvey, head of foreign exchange analysis at Monex Europe,Sanctions have made rubles toxic in much of the world.

JPMorgan estimates that the sanctions will shrink Russia's gross domestic product by 35% in the second quarter and 7% for the full year. Russia's GDP in dollar terms will continue to shrink, even to less than a trillion dollars.

3. Global Impact of Sanctions Against Russia

• Commodity inflation is critical

To start, the main conflict that will affect global growth and inflation forecasts is through commodities.

Russia is the world’s leading exporter of natural gas (17.1% of global production) and the second-largest exporter of crude oil (12.1%).

For context, Saudi Arabia accounts for 12.5% of the crude market.Russia and Ukraine are also significant agricultural producers: Their combined wheat, barley, and maize exports represent 21% of the global total, and together they supply 60% of the world’s sunflower oils.

Russia and Belarus also account for approximately 20% of total fertilizer exports, which is vital for global food production.

Meanwhile, Russia is one of the world’s largest producers of critical metals. It’s the biggest exporter of palladium (20.7% of total volume) and ranks second after Chile in terms of refined copper (7.1%). The country also holds the third position for nickel (11.2%) and aluminum (9.0%).

The conflictis going to causestagflation economic shock as the higher-inflation-than-comfortable component in the first half of 2022. Then the second-order impact of sharply rising energy and food prices is a growth shock, as energy demand has notoriously limited elasticity.

It is expect to be thinking much more about the global consumer’s exposure to energy in the weeks ahead. Combined with supply chain disruptions that may limit inventory rebuilds that we hoped would fuel growth in the second half of 2022.

• Impact on tradecompanies in US, Chinese,and etc.

For those foreign companies that do trade with Russia, they may experience significant revenue losses due to the devaluation of the ruble.

Regarding China: As an important trade partner of Russia, China's exports of automobiles, home appliances and construction machinery to Russia have maintained rapid growth. In 2021, the trade volume of mechanical and electrical products between China and Russia will reach 43.4 billion US dollars.

Among them, the sales of Chinese brand cars such as Haval, Chery, and Geely in Russia have hit a record high, and Chinese brand electronic products such as Huawei and Xiaomi are favored by the Russian people. In addition LED lighting companies, companies in the apparel industry will also be affected.

Related United States: In 2021, the United States imported an average of 209,000 barrels of crude oil and 500,000 barrels of other petroleum products per day from Russia. This accounts for 3% of U.S. crude oil imports and 1% of total crude oil processed by U.S. refineries,

Adam Pankratz, a professor at the Sauder School of Business at the University of British Columbia, said, "If the U.S. stops importing Russian oil, it could mean that many other countries will also stop importing Russian oil, which will make a very tight oil market even more tight, This will drive up oil prices, which in turn will drive inflation, which in turn will affect the U.S. economy.”

Pankratz said rising inflation could have "huge" political consequences.Rising prices have already taken a toll on U.S. President Joe Biden's approval rating, which has been in the doldrums after falling to an all-time low of 33% in January, and a further rise in inflation will further weaken the president in November. position ahead of the crucial midterm elections.

Question For You?

Which Industry or Company you know that influenced by Ruble's Devaluation?